The End of Portugal’s NHR Tax Program: Luis Horta e Costa, Experts, Unravel the Real Estate Implications

In the last decade, Portugal has emerged as a haven for wealthy foreign investors, particularly in the real estate market. This is thanks to Portugal’s enticing Non-Habital Resident (NHR) Tax Program. The NHR program provides financial incentives to wealthy foreigners who relocate to Portugal.

However, Prime Minister Antonio Costa recently claimed the NHR tax scheme may end as soon as 2024. While the controversial announcement isn’t final, the program will likely end in early 2024.

Costa’s announcement has implications for both individual investors and the entire Portuguese economy. Real estate developer Luis Horta e Costa and other professionals explain how ending NHR will harm the Portuguese economy.

The History of the NHR Program

Portugal introduced the NHR tax program in 2009 to attract affluent foreign residents and investors.

The government designed the NHR to stimulate the then-stagnant Portuguese economy and rejuvenate the real estate market—and it worked. The NHR led to a significant increase in foreign investments flowing into Portugal, particularly into real estate. 

This program offered flat tax rates on certain earnings and exempted earnings made in another country, helping foreign residents avoid double taxation. The NHR also provided a flat tax rate on foreign pensions. As of 2022, over 74,000 people have benefited from NHR.

“The NHR program wasn’t just a tax benefit; it was an invitation. It told the world that Portugal was open for business and collaboration. Without it, I fear our real estate sector will witness stagnation if not regression,” explains Luis Horta e Costa, a Portuguese real estate expert and the co-founder of Square View.

“The influx of international residents not only increased property values but also contributed to our cultural and economic growth. It’s a loss on multiple fronts.”

Ending the NHR: Luis Horta E Costa and Other Experts Explain the Ramifications of Tax Increases

The government’s move to terminate the NHR tax program in 2024 comes amid debates surrounding its long-term sustainability. However, economists and real estate experts argue that ending the NHR could spell disaster for Portugal’s economy in the long run.

“The idea of ending the NHR program is based on a socialist and populist idea of hoping to solve the middle-class housing crisis. Unfortunately, the proposed solution is not killing the demand, but increasing the offer,” Luis Horta e Costa explains.

1. Foreigners Decide Against Moving to Portugal

Real estate experts believe the NHR is pivotal for attracting affluent foreigners to Portugal, and its termination could end this trend. Many foreigners are already turning away from Portugal. 

“We already have clients that are looking to reconsider their plans,” wealth manager Alex Ingrim says in an interview with Business Insider.

“It made Portugal a really attractive jurisdiction to work or to retire. Foreigners were also tax-exempt on capital gains on property transactions abroad or rental income that was generated abroad, so it had all of these different advantages to it.”

2. Portuguese Real Estate Must Reinvent Itself

At its core, the goal of the NHR program was to attract foreign buyers and investors. Favorable tax conditions made Portuguese real estate an attractive proposition to foreigners looking for a good deal.

With the program’s end, there is a genuine concern that the demand from foreign buyers will wane, leading to possible stagnation or even a decline in property values.

The NHR was especially effective in drawing wealthy investors to Portugal. Regions like Algarve, Porto, and Lisbon saw increased demand for luxury properties. Without the program, the high-end property market might face a significant downturn because elite clientele will look for more competitive markets.

Ending NHR could also lead to issues with real estate supply. Anticipating consistent foreign demand, many developers created ambitious residential projects across Portugal. Terminating NHR could result in an oversupply in the market, especially in areas popular with foreigners.

This oversupply of inventory could harm prices and lead to longer times on the market for listed properties. For property investors and landlords, fewer foreign residents could mean fewer tenants and a reduction in rental revenue, especially in tourist areas.

3. NHR Termination Has Broad Economic Consequences

Ending the NHR program could also harm other sectors of Portugal’s economy. Foreign investments were a growth catalyst for various industries, from tourism to technology. A potential decline in such investments could affect job markets, tourism revenue, and more.

Tourism, which accounts for 10 percent of Portugal’s GDP, is particularly vulnerable. The industry benefited greatly from the influx of foreign residents and investors. With them came a new demographic of tourists, including their families, friends, and business associates.

As foreign investors opened businesses, it supported the creation of essential infrastructure for the tourist industry, including boutique hotels and restaurants. Ending the NHR program will slow this momentum, leading to less tourism and economic stagnation.

Expert Tips on Preparing for a Future Without NHR

With the end of NHR, progressive taxes could see a sharp increase of as much as 48 percent. As the Portuguese government prepares to end NHR, foreign residents struggle to find solutions—and many are looking abroad for tax havens.

Shelley Wren, the Head of Business Development at Sovereign Consultoria, is already telling her clients to relocate to more tax-advantaged countries. “For individuals who will now not be eligible for NHR status, or whose existing NHR status is coming to an end, it may be sensible to consider a move to Cyprus,” she says.

“The termination of NHR is already having an effect. Many foreign investors, who once saw Portugal as a sanctuary for their assets and ventures, are now looking for alternative havens. It is disappointing to see so many investors leave the country, but it underscores the importance of the NHR program in our nation’s appeal to foreign investors,” Luis Horta e Costa adds.

The Road Forward: Portugal After NHR

Terminating the NHR program marks the end of an era for Portugal. The program brought undeniable prosperity to the country, and the program’s termination will likely cancel out these positive gains.

“The future is uncertain, but our resilience and adaptability are our greatest assets,” Luis Horta e Costa says.